"You Ought To Own Oil," Says Terranova

Tuesday, 23 Sep 2008 | 3:54 PM ET

Oil prices fell $5 on Tuesday -- reversing direction after Monday's dramatic rally which sent the price of crude substantially higher in a single session.

If you watch Fast Money regularly you might remember that we told you this would likely happen on Monday’s show.

Fast Money Final Call
Inside the oil trade, with Joe Terranova, chief alternatives strategist with Phoenix Investment Partners

At the time Fast Money’s Joe Terranova revealed that the recent spike stemmed from a hedge fund that was forced into covering a short position. (In other words they essentially had to buy oil contracts no matter the price ahead of expirations.)

But the volume of contracts traded Monday suggested to Terranovoa that the spike would not last. And he was right.

It’s not the same as what happened earlier in the year when oil surged over $140. “During May and June investors were chasing the one thing that was working, and that one thing was energy,” he says.

Now that the specific catalyst (short covering) has been removed from the equation, how should you play oil?

“You ought to own oil," Terranova counsels. "The fundamental supply story is in tact. I expect oil to trade between $85 to $115. If it gets down $95 I’m a buyer and if it gets up to $110 I’d take some off the table. Often time on Fast Money Terranova will recommend playing the space with the United States Oil Fund .

And if you want a more complex trade you might also want to keep an eye on “reformulated gasoline inventories” which will be released Wednesday. “It seems like the industry is working off inventory,” Terranova says. If so, that could be bullish for the refiners.

Got something to to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment but not have it published on our website send those e-mails to fastmoney@cnbc.com.

CNBC.com with wires

  Price   Change %Change


Contact Fast Money

  • Showtimes

    Halftime Report - Weekdays 12p ET
    Fast Money - Weekdays 5p ET
  • Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

  • Scott Wapner is host of the "Fast Money Halftime Report," which airs weekdays from 12 p.m. to 1 p.m. ET.

  • Guy Adami is a contributor on CNBC's "Fast Money." He also is managing director of stockMONSTER.com.

  • Najarian, the "Pit Boss," is cofounder of optionMONSTER.com, a news site for options traders.

  • Finerman is president of Metropolitan Capital Advisors, Inc., a company she co-founded.

  • Founder of EmergingMoney.com

  • Chief Market Strategist for Virtus Investment Partners & CNBC Contributor

Halftime Report